should the federal government reform Medicare before it becomes unaffordable?
Answering your questions are Karen Davis, president of the Commonwealth
Fund; Robert Reischauer, a senior fellow at the Brookings Institution;
and Stuart Butler, vice president for domestic and economic policy studies
at the Heritage Foundation.
D'Angelo of Gulfport, MS says:
If all the talk is about where the surplus money should go, should we not look at where the money is coming from? If we separated the amount of money coming in to the federal government I think we would see that the surplus is from Medicaid, Medicare and Social Security.
Reischauer of the Brookings Institution responds:
The budget surplus that we hear so much about is entirely made up of the Social Security surplus. For the current fiscal year, Social Security is projected to run a surplus of about $127 billion while all of the other accounts of the government, taken together, will have a deficit of $16 billion leading to an overall surplus of $111 billion ($127-$16). If policies are not changed and the economy performs as expected, a surplus will develop in the non-Social Security accounts in 2001. The surpluses in both Social Security and the other accounts will then grow steadily for at least the next decade.
The Medicare HI trust fund is also running a small surplus?$8 billion in 1999. These surpluses should continue through 2007. Nevertheless, three-quarters of the Supplemental Medical Insurance or Part B portion of Medicare is financed out of general revenues so, overall, the Medicare program does not contribute to the surplus. Medicaid is financed from general revenues and does not add to the surplus.
Butler of the Heritage Foundation responds:
It's true that for a few more years the surplus is generated by the excess of Social Security tax revenue over benefits paid to today's elderly and disabled. But after that (assuming the estimators are correct) unexpected general tax revenues will constitute a surplus net of Social Security taxes. But two things that don't add to the surplus are Medicaid and Medicare. No revenues as such come into Medicaid to offset costs. And in the case of Medicare, the hospital fund is in cash-flow deficit (requiring it to draw down its taxpayer-backed IOUs), and the costs of the part of Medicare that pays physician bills (Part B) have always exceeded monthly premium payments and so needed taxpayer subsidies. The simple fact is that Medicare is in the red, and going deeper into the red. That's why it needs reform.
Davis of the Commonwealth Fund responds:
· It is correct that the Social Security trust funds are generating a surplus annually; the Medicare hospital insurance trust fund will be drawn down over the next 10 years and be exhausted by 2008.
· It is important to remember that the Balanced Budget Act of 1997 made very sharp reductions in Medicare spending. Savings of $394 billion over the ten year period from 1998-2007 or an average of $40 billion a year were generated by increasing premiums to beneficiaries and reducing payments to hospitals, home health agencies, physicians, managed care plans, and other health care providers. Premiums for beneficiaries were increased by about $80 billion over the 10 year period. Today premiums are $45.50 per month; in 2008 premiums will more than double to $103 per month.
· The President has proposed dedicating 15 percent of the 15-year budget surplus - or about $40 billion a year to the Medicare trust fund. This would restore to the Medicare trust fund approximately the same revenues generated by Medicare savings in the BBA.